GST Notice for ITC Mismatch: GSTR-2B vs GSTR-3B and How to Reply

A mismatch between Input Tax Credit (ITC) claimed in GSTR-3B and the amount reflected in GSTR-2B is a common reason for GST notices, including DRC-01C, ASMT-10, DRC-01A and show cause notices. However, such a difference does not automatically establish wrongful availment of credit. Discrepancies may arise from delayed reporting of invoices by suppliers, ITC claimed in subsequent financial years, temporary reversals and reclaims, reverse-charge transactions, imports, credit notes and amendments. The applicable legal provisions must be examined according to the relevant financial year, particularly Section 16(2)(aa) of the CGST Act, effective from 1 January 2022, Rule 88D and the demand provisions under Sections 73, 74 and 74A. Taxpayers should verify the notice, identify the reasons for each discrepancy and examine whether the department has compared gross ITC instead of net eligible credit.

A proper reply should be supported by a financial-year-wise reconciliation of GSTR-2B and GSTR-3B, using GSTR-9 Tables 8C, 12 and 13 wherever applicable. Adjustments should be made for previous-year credit claimed during the current year, current-year credit claimed subsequently, reversals, reclaims and transactions not reflected in GSTR-2B. Supporting documents should include purchase invoices, monthly returns, supplier ledgers, payment records, reversal workings, GSTR-9, GSTR-9C where applicable and DRC-03 payment details. Responses must follow the prescribed procedure for the relevant notice, including Part B of DRC-01C, ASMT-11 for scrutiny notices and DRC-06 for show cause notices. Where a genuine excess claim remains unexplained, the taxpayer should examine the applicable tax, interest and penalty consequences. A complete, invoice-wise reconciliation supported by documentary evidence is essential for defending eligible ITC and resolving mismatch proceedings.

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GST Notice for ITC Mismatch: GSTR-2B vs GSTR-3B and How to Reply

By CA Shyam Sundar Lahoti

Brief

Input Tax Credit (ITC) claimed in GSTR-3B that exceeds the credit shown in GSTR-2B is now one of the most common triggers for GST notices, whether as an automated DRC-01C intimation, a scrutiny notice in ASMT-10, an intimation in DRC-01A or a show cause notice.

This article sets out the legal basis for the comparison, the stages at which a notice can arrive, the general checks to make, and a year-wise reconciliation method built on the GSTR-9 tables. It then covers stage-wise reply guidance, case law, interest and penalty, and a preventive checklist. Sample reply formats are given in the annexures.

1. Introduction

GSTR-2B is the static, auto-drafted statement of ITC for each tax period, prepared from the returns filed by suppliers along with import and ISD data. GSTR-3B is the return in which the registered person declares the ITC actually availed. Because credit on invoices and debit notes is allowed only against what the supplier has reported, the portal now compares the two for every period, and the officer compares them again during scrutiny, audit or assessment, usually for the whole financial year.

A notice does not mean the credit is wrong. The two statements follow different timelines, and most differences come from timing, reversals and items that never pass through GSTR-2B. An invoice may appear in the 2B of a later month. Credit of one year may be claimed in the next. Reversals may be made after the year-end. Officers frequently take the 3B total of a year, compare it with the 2B total of the same year and treat the gap as excess ITC, without adjusting for these items.

A reply that closes the matter does three things:

•  Traces every rupee of the difference to a cause.
•  Proves each cause through a year-wise reconciliation tied to the GSTR-9 of the relevant years.
•  Attaches the documents the officer needs to verify the position without raising further queries. This article follows that approach and sets out each step along with the provision that supports it.

Note on approach: The reply steps in this article are general and suggested. They are not a fixed or mandatory procedure, and the right approach will differ from case to case depending on the notice, the financial year, the section invoked and the facts of the taxpayer.

2. Legal framework

Section 16(2)(aa) of the CGST Act (inserted with effect from 1 January 2022). Section 109 of the Finance Act 2021 inserted this clause, and it was brought into force from 1 January 2022 by Notification No. 39/2021-Central Tax dated 21 December 2021. From that date, ITC on an invoice or debit note can be availed only if its details have been furnished by the supplier and communicated to the recipient in GSTR-2B. This is why the 2B figure is treated as the benchmark for credit on invoices and debit notes for tax periods from January 2022.

Position before 1 January 2022. For the earlier years, FY 2017-18 to FY 2021-22, there was no such clause. ITC was availed on the basis of the books of account and the purchase invoices, and GSTR-2A was an auto-populated statement that was not a strict condition for claiming credit. The one restriction was Rule 36(4), which limited credit on invoices not reflected in GSTR-2A, from 9 October

2019 and with a percentage limit that changed over time. That rule was replaced from 1 January 2022,

when clause (aa) came in. FY 2021-22 is therefore a split year: tax periods from April to December 2021 fall under the earlier position, and January to March 2022 under clause (aa). GSTR-2B itself became available only from August 2020. A notice for these years has to be answered on the law that applied to the period, and a GSTR-2B comparison for a period before January 2022 should not be treated as a strict test.

Section 16(2)(c). Tax charged on the supply must have been paid to the Government by the supplier. This is the basis of most disputes where a supplier has defaulted.

Section 16(4). ITC on an invoice or debit note cannot be taken after 30 November following the end of the financial year, or the date of filing the annual return, whichever is earlier. This limit applies from FY 2021-22 onwards. Before that, the limit was the due date of the GSTR-3B for September following the end of the financial year (generally 20 October), or the date of filing the annual return, whichever was earlier. The change was made by Section 100(b) of the Finance Act 2022, with effect from 1 October 2022. The limit has to be checked whenever credit of one year is claimed in the next, or reclaimed after a reversal, and for earlier years the deadline applicable to that year must be used.

Rule 37. If the recipient has not paid the supplier within 180 days from the invoice date, the ITC must be reversed with interest, and it can be re-availed on payment.

Rules 42 and 43 and Section 17(5). Reversals for exempt supplies and non-business use, and blocked credits, affect the figures in GSTR-3B Table 4 and are a frequent source of unexplained differences.

Rule 88D. Inserted with effect from 4 August 2023, this rule lets the portal compare the ITC available in GSTR-2B with the ITC availed in GSTR-3B. Where the excess crosses the limits set, Part A of FORM GST DRC-01C is issued automatically. The taxpayer can pay the excess with interest through DRC-03, or explain the difference in Part B, within seven days.

Demand provisions. For FY 2017-18 to FY 2023-24, demands for wrongly availed ITC are raised under Section 73 (non-fraud) or Section 74 (fraud, wilful misstatement or suppression). From FY 2024-25 onwards, Section 74A governs both kinds of case. The notice must always be read against the provision applicable to the financial year concerned.

Interest. Interest on ITC wrongly availed and utilised is charged under Section 50(3) at the rate notified for that sub-section.

Relief for FY 2017-18 and 2018-19. For these two years, CBIC Circular 183/15/2022-GST gave a certification-based procedure for GSTR-2A versus GSTR-3B mismatches. Where such a notice is still being handled, the circular and its categories (cases admitted and paid, ongoing proceedings, and appeals) should be checked.

3. Types of notices for ITC mismatch

Form	Issued under	What it is	Reply
DRC-01C	Rule 88D	System-generated intimation of excess ITC in 3B over 2B	Part B, or payment through DRC-03, within 7 days
ASMT-10	Section 61 read with Rule 99	Scrutiny notice pointing out discrepancies in the return	ASMT-11 within 30 days, extendable on request
DRC-01A	Rule 142(1A)	Intimation of tax ascertained, before a show cause notice	Part B, or payment through DRC-03
DRC-01	Section 73, 74 or 74A	Show cause notice for tax, interest and penalty	DRC-06 within the time in the notice

4. Why GSTR-2B and GSTR-3B differ

Before replying, identify which of these apply. Most notices turn out to be a combination.

1. Timing differences. The supplier reported late, so the invoice appears in the 2B of a later month. Credit is claimable from the month in which the invoice appears in 2B.

2. ITC claimed in a different financial year. Credit of the previous year claimed in the current year, or credit of the current year claimed in the next year, will not match a same-year comparison of 2B and 3B.

3. Reversals made after the year-end. Excess credit reversed in the next year, within the time of Section 16(4), changes the position for the year under notice.

4. Items not routed through 2B. Import of services and reverse charge on supplies from unregistered persons are paid and claimed by the recipient and do not appear in 2B.

5. Reverse charge on registered suppliers. These invoices appear in 2B, but ITC is available only after the recipient pays the tax in cash. The credit can generally be claimed in Table 4(A)(3) of the same month’s GSTR-3B once the payment is made. In practice, however, many taxpayers pay the RCM late in the month or after closing the books, and claim the credit in the next month’s return. The credit then falls in a different month from the 2B entry, and the two figures differ in timing even though the credit itself is eligible.

6. Imports of goods. Credit appears in 2B from bill of entry data, and differences arise when

entries are amended or fall in another period.

7. Reversals and reclaims. Reversals under Rule 37, 42, 43 and Section 17(5), and later reclaims,

change the net figure in Table 4.

8. Temporary reversal and reclaim. An invoice is first claimed in Table 4(A)(5) (all other ITC)

when it appears in 2B. It may then be reversed temporarily in Table 4(B)(2) and claimed again in 4(A)(5) of a later month once the condition is met. The reclaimed amount is also shown in Table 4(D)(1). The same invoice therefore enters the gross 4(A)(5) figure twice, while 2B shows it once. The 4(B)(2) reversal offsets the repeat, so the net credit is correct, but the gross figure exceeds 2B by the reclaimed amount.

9. Credit notes and supplier amendments. These change the 2B figure after the recipient has

filed 3B.

10. Invoice Management System (IMS) actions. Invoices rejected or kept pending by the recipient

affect what flows into GSTR-2B. Check how IMS treated the period in question.

11. ISD credit, quarterly filers and clerical errors. ISD credit is reported separately, QRMP

suppliers report on a quarterly cycle, and errors in 3B such as a wrong table or double claim do occur.

5. General checks when a notice arrives

These are the general checks that apply to most notices. Examining the notice in this order saves time and avoids replying under the wrong provision, but the checks needed will vary from case to case.

1. Read the officer’s attachment issue by issue. List each point raised, with its amount and period, as a separate item, because the reply has to answer each one.

2. Identify the section invoked. Check whether the notice is under Section 73, 74 or 74A, and whether that provision is the right one for the financial year. Also note the rule governing ITC for the period: books-based claims before 1 January 2022, and the GSTR-2B condition of Section 16(2)(aa) after it.

3. Check whether the notice is time-barred. Broadly, Section 73 requires the notice to be issued at least three months before the time limit for the order, which is three years from the due date of the annual return. Section 74 uses six months and five years. Section 74A prescribes its own period from the due date of the annual return. For earlier years, notifications extending time limits under Section 168A must also be checked. Use the Section 16(4) deadline that applied to the year in question.

4. Check whether the difference arises from year-crossing items. Look for credit of the previous year claimed in the year under notice, and for credit of this year reversed in the next year within Section 16(4).

5. Check DRC-03 payments for the year. Any voluntary payment shown in the GSTR-9 of that year should be reflected in the reply.

6. Check the reconciliation filed with GSTR-9C. Where GSTR-9C was filed for the year, see what

its ITC reconciliation already shows, including the reasons given for any unreconciled difference. If the same difference was explained there, that explanation can support the reply, and the reply should not contradict it.

7. Check whether the officer’s 2B figure is correct. Verify the total taken by the officer against the actual monthly GSTR-2B. Sometimes the officer has used the gross 3B figure, in which case reversals made during the year must be shown in the reconciliation. This often happens with temporary reversals and reclaims. Check Table 4(B)(2) and Table 4(D)(1) month by month before accepting the officer’s gross figure.

6. Preparing the year-wise reconciliation

The central document in every reply is a reconciliation for the whole financial year, supported by the GSTR-9 of the year under notice and the previous year. The method is to start from the 3B figure and move it to the ITC that truly relates to the financial year, then do the same for 2B and compare.

6.1 Where the adjustments come from in GSTR-9

• Table 8C shows ITC of the financial year that was availed for the first time in the next financial year, within the cut-off time. The same amount is also reported in Table 13.
•  Table 12 shows ITC of the financial year that was reversed in the next financial year.
• For the previous-year items, the source is the GSTR-9 of the previous year. For example, if the notice is for FY 2023-24 and credit of FY 2022-23 was claimed in 2023-24, the 8C and Table 13 of the FY 2022-23 return show how much was claimed in the next year, and its Table 12 shows how much was reversed. Two cautions apply. First, these tables capture only claims and reversals made within the cut-off period. Anything outside it must be identified from the 3B itself, invoice by invoice. Second, the reporting rules for these tables have changed over the years, and the cut-off for next-year claims has also varied, so the GSTR-9 form and instructions for the year concerned must be checked. For FY 2021- 22 onwards the cut-off for next-year claims is 30 November, and for earlier years it was tied to the September return.

6.2 Reconciliation of ITC as per GSTR-3B (illustrative, Rs. in lakh)

Particulars	Rs. lakh
ITC as per GSTR-3B for the year, net of reversals	100.00
Less: previous-year ITC claimed in this year (previous-year GSTR-9, 8C / Table 13)	(6.00)
Add: previous-year ITC reversed in this year (previous-year GSTR-9, Table 12)	1.00
Add: current-year ITC claimed in the next year (this year’s GSTR-9, 8C / Table 13)	4.00
Less: current-year ITC reversed in the next year (this year’s GSTR-9, Table 12)	(0.50)
ITC relating to the financial year, as per 3B	98.50

6.3 Reconciliation of ITC as per GSTR-2B (illustrative, Rs. in lakh)

Particulars	Rs. lakh
Total ITC as per GSTR-2B for the twelve months	97.00
Less: previous-year invoices appearing in this year’s 2B	(5.50)
Add: current-year invoices appearing in next year’s 2B	5.00
ITC relating to the financial year, as per 2B	96.50

6.4 Comparison and explanation of the difference (illustrative, Rs. in lakh)

Particulars	Rs. lakh
ITC as per 3B (corrected)	98.50
ITC as per 2B (corrected)	96.50
Difference	2.00
Explained: import of services and reverse charge on unregistered supplies, claimed on payment	1.50
Unexplained, accepted and paid with interest	0.50

The figures above are only to show the layout. In a real reply, each line should carry its workings and documents. The remaining difference should not be argued without support. Where a small amount cannot be explained, accepting it and paying it with interest is usually more credible than disputing everything.

6.5 Supporting attachments

Attach the GSTR-9 of both years, the monthly GSTR-3B and GSTR-2B, and the invoice-wise working behind each adjustment. If the officer’s 2B total is incorrect, attach the 2B statements and show the correct total. If the officer has taken the gross 3B figure, show the reversals made during the year and explain that the comparison has to be made on the net credit. Because the reconciliation starts from the net figure, a temporary reversal and its later reclaim cancel out. Where the notice is based on the gross figure, add a separate working that lists each temporary reversal and each reclaim, by month and invoice. Where GSTR-9C was filed for the year, attach a copy of the ITC reconciliation filed with it, and make sure its figures agree with the reconciliation in the reply.

7. How to reply at each stage

7.1 DRC-01C (Rule 88D)

The window is short, so the first step is to find the reason for the excess. In our practice, the cause is generally that the supplier reported the invoice in a later month. In that case Part B should state the invoices and the month in which they appeared in 2B, and confirm that the credit was not claimed again. Where some excess still remains after this exercise, it is reversed with interest.

Rule 88D provides for payment of the excess ITC with interest through DRC-03, with the cause of payment selected as ITC mismatch – GSTR-2A/2B to GSTR-3B, and for the DRC-03 details to be reported in Part B. The DRC-03 should be filed on or after the date of Part A.

An unanswered intimation can block the next GSTR-1 under Rule 59(6) and the excess can be pursued under the demand provisions, so Part B should always be filed in time and the full reconciliation kept ready for any later scrutiny.

7.2 ASMT-10 and DRC-01A

A reply to ASMT-10 is filed in ASMT-11, normally within 30 days, and more time can be requested. For DRC-01A, the taxpayer replies in Part B or pays through DRC-03 where liability is accepted. A good reply contains:

1. A brief factual background of the business and the notice.

2. An issue-wise response following the officer’s own attachment, so that each point has an

answer.

3. The year-wise reconciliation of Section 6, with the GSTR-9, 3B and 2B attached.

4. A point-wise explanation of each remaining difference, with documents.

5. Acceptance of any genuine error, with payment of tax and interest, and proof of payment.

6. A prayer to drop the proceedings and a request for a personal hearing if the officer is not satisfied.

7.3 Show cause notice (DRC-01) under Section 73, 74 or 74A

Check first that the section invoked matches the financial year and that the notice is within limitation. The reply is filed in DRC-06 and should address jurisdiction and limitation, the allegation (if fraud or suppression is alleged, it must be met specifically), the merits of each item of credit, and the computation of interest and penalty. Payment of the tax with interest within the period allowed after the notice can reduce or remove the penalty, and the relevant section should be checked for the exact benefit. A personal hearing should be requested in the reply, and the reconciliation attached as an annexure.

8. Documents to keep ready

•  Purchase invoices, debit and credit notes, and the purchase register
•  Proof of payment to suppliers, such as bank statements and ledgers • Goods receipt notes, e-way bills and transport documents, to show receipt of goods
• Reversal workings under Rules 37, 42 and 43 and Section 17(5)
• Bills of entry for imports, and evidence of payment under reverse charge
•  Supplier correspondence where a supplier reported late or amended
• GSTR-2B, GSTR-3B and GSTR-9 for the year under notice and the previous year
• DRC-03 challans for any voluntary payment
•  Month-wise working of temporary reversals (Table 4(B)(2)) and reclaims (Table 4(D)(1)), with invoice details and the reason for each reversal
•  GSTR-9C and the reconciliation statement filed with it, where applicable for the year

10. Interest, penalty and consequences

Where ITC has been wrongly availed and utilised, interest under Section 50(3) applies, and the amount can be recovered through the demand provisions along with penalty, depending on whether the notice is under Section 73, 74 or 74A. Where a claim is not defensible, paying the tax with interest before a show cause notice is issued can prevent further penalty exposure. An unanswered DRC-01C or ASMT-10 weakens the position later, so even a partial reply is better than silence.

11.Conclusion An ITC mismatch notice is a documentation exercise as much as a legal one. The 2B figure is the benchmark under Section 16(2)(aa), but the 2B and 3B totals of a single year are rarely comparable without adjustment. Credit crosses year boundaries, reversals happen after the year-end, and some credits never pass through 2B at all.

The most effective reply is therefore one that moves both figures to the credit that truly relates to the financial year, using the GSTR-9 of the year under notice and the previous year, and then explains the remaining difference line by line. Before that, the notice itself must be checked: the section invoked, the limitation, and the correctness of the officer’s own figures. Accepting a small genuine error with interest, while defending the balance with documents, usually resolves the matter at the first or second stage.

The best protection is a monthly reconciliation discipline, kept up throughout the year, so that the answer to any notice is already in the file. A reply prepared on that basis is quicker to write, easier for the officer to verify, and far less likely to move to the next stage.

References

1. Central Goods and Services Tax Act, 2017: Sections 16, 17(5), 50, 61, 73, 74, 74A and 168A

2. Central Goods and Services Tax Rules, 2017: Rules 37, 42, 43, 59(6), 88D, 99 and 142

3. Notification No. 38/2023-Central Tax dated 4 August 2023 (insertion of Rule 88D)

4. CBIC Circular No. 183/15/2022-GST (GSTR-2A and GSTR-3B mismatch, FY 2017-18 and 2018- 19)

5. FORM GSTR-9 and its instructions for the relevant financial year (Tables 6, 7, 8, 12 and 13)

Disclaimer: This article is for general information and does not constitute professional advice. GST law, time limits and portal functionality change frequently, so readers should check the current provisions, notifications and circulars before acting.

About the author

CA Shyam Lahoti is a Chartered Accountant with over six years of post-qualification experience in audit, GST litigation, compliance and accounts finalization. He is based in West Bengal and writes on direct and indirect taxation.